Iraq's oil contracts make joining OPEC output cut more painful

Fri Nov 18, 2016 3:36am EST
 
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By Ahmad Ghaddar and Ahmed Rasheed

LONDON/BAGHDAD (Reuters) - Iraq would have to compensate international oil companies for limits placed on their production, according to industry sources and documents seen by Reuters, further reducing the prospect it will join any OPEC deal to curb the group's output.

The compensation - stipulated in contracts - would compound the financial hit of losing much-needed revenue from crude sales, if the cash-strapped country were to yield to OPEC entreaties to curtail national production.

OPEC member Iraq pays developers a fixed dollar-denominated fee for every barrel of oil produced in the south of the country - home to its biggest reserves - under technical service contracts agreed between the international firms and the state-owned South Oil Company (SOC).

"Immediately after (an) SOC notice of ... production curtailment, the parties shall agree ... a mechanism to promptly fully compensate (the) contractor as soon as possible," according to an excerpt of the contract the ministry signed with BP in 2009 for the company to develop the 20-billion-barrel Rumaila field.

The compensation, according to the excerpt seen by Reuters, "may include, amongst other things, a revised field production schedule or an extension to the term or payment of all or part lost income to contractor".

Britain's BP declined to comment.

The same clause also applies to other fields covered by the technical service contracts in the south, including fields being developed by Anglo-Dutch firm Shell, U.S. major Exxon Mobil and Italy's Eni, according to industry sources.

A Shell spokeswoman said it did not comment on contracts. Exxon declined to comment and Eni did not immediately reply to a request for comment.   Continued...

 
A worker checks the valves at Al-Sheiba oil refinery in the southern Iraq city of Basra, January 26, 2016.   REUTERS/Essam Al-Sudani/File Photo